CSDDD Article 2 Scope Thresholds and In-Scope Groups

For EU companies formed under Member State law, the general Article 2(1)(a) route applies when the company had more than 1,000 employees on average and net worldwide turnover of more than EUR 450 million in the last financial year for which annual financial statements have been or should have been adopted.

For non-EU companies, Article 2(2)(a) does not use an employee threshold. The trigger is net turnover of more than EUR 450 million generated in the Union in the financial year preceding the last financial year.

Start with each EU legal entity, then test the group. A Member State company is in scope under Article 2(1)(a) if it passes both the employee and net worldwide turnover thresholds. If it does not, Article 2(1)(b) can still pull in the ultimate parent when the group reaches those thresholds in the last financial year for which consolidated annual financial statements have been or should have been adopted.

Employee counts should be recorded on a full-time-equivalent basis for part-time employees. Temporary agency workers and other workers in non-standard employment are included where they meet the worker-status criteria referenced in the Directive.

For third-country companies, the core scope test is Union turnover, not global headcount. Article 2(2)(a) covers a non-EU company that generated more than EUR 450 million net turnover in the Union in the financial year preceding the last financial year. Article 2(2)(b) applies the same Union-turnover test on a consolidated group basis for ultimate parent companies.

Once a non-EU company is within Article 2(2), Article 23 requires an authorised representative established or domiciled in a Member State where the company operates, and the authorised representative or company must notify supervisory authorities that the company is in scope.

Article 2(1)(c) and 2(2)(c) create a separate route for companies, or ultimate parent groups, that enter into franchising or licensing agreements in the Union with independent third-party companies. The route is limited to agreements that ensure a common identity, a common business concept, and uniform business methods.

For EU companies or groups, the royalty threshold is more than EUR 22.5 million and the supporting turnover threshold is more than EUR 80 million net worldwide turnover. For non-EU companies or groups, the same EUR 22.5 million royalty threshold and EUR 80 million turnover threshold are measured in the Union.

Article 2(5) says the Directive applies only if the Article 2(1) or 2(2) conditions are met in two consecutive financial years. It also says the Directive ceases to apply where those conditions cease to be met for each of the last two relevant financial years. A scope file should therefore show both the trigger year and the second consecutive year, not only the most recent turnover estimate.

Directive (EU) 2025/794 amended Article 37 timing. Member States must adopt and publish CSDDD transposition measures by 26 July 2026. The first active application date in the amended text is 26 July 2027 for EU and non-EU companies in Article 2(1)(a), 2(1)(b), 2(2)(a), and 2(2)(b) that meet the higher EUR 900 million wave thresholds; all other Article 2 companies, including the franchise and licensing route, follow from 26 July 2029, with Article 16 communication measures from financial years starting on or after 1 January 2030.

A useful scope file should let legal, finance, sustainability, and group reporting teams reproduce the Article 2 conclusion without relying on memory. The record should show the legal route tested, the financial statements used, the calculation periods, the threshold result, and any supervisory-authority or authorised-representative follow-up.

The evidence standard is different for each route. EU company files need employee and worldwide turnover evidence; non-EU files need Union turnover and authorised-representative evidence; group files need consolidation and parent-control evidence; franchise or licensing files need agreement features, royalty totals, and turnover totals.